The Dollar was slightly weaker overnight versus most currencies, with EUR/USD clawing its way back to 1.20, while Sterling is treading water. The Dollar TWI is still up nearly 1% this week and the Federal Reserve, which as expected left its policy rate unchanged at 1.50-1.75% yesterday, painted a positive picture of the US economy in its policy statement.
Recent data supports this assessment, with measures of growth robust and inflation continuing to rise. Although the US manufacturing ISM index moderated to 57.3 in April from 59.3 in March, April has tended to be a weak month and this level is still compatible with about 3% manufacturing output growth. Moreover, employment in the non-farm private sector increased by a healthy 204,000 in April, in line with expectations, which bodes well for tomorrow’s official non-farm payrolls data.
The bottom line is that the US economy is proving more resilient than the Eurozone’s and is growing much faster than the UK’s and the question is still very much whether the Federal Reserve could still hike rates three more times this year. Focus will now likely turn to today’s non-manufacturing ISM data for April given the importance of the US service sector.
